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The Democratic presidential candidates are distancing themselves from capitalism and endorsing policies that would dramatically expand the federal government’s role and restrict economic freedom. Recent surveys suggest that most Democrats and millennials view socialism more favorably than capitalism. President Trump is pursuing policies that restrict economic freedom, international trade and immigration.

The Capitalism Paradox, cover image: Freepik.com

This growing rejection of capitalism baffles economists who point to powerful evidence supporting the strong link between economic freedom and human welfare. Compare the quality of life in North and South Korea, in East and West German before the fall of the Berlin Wall, or witness the tragic deterioration in living conditions in Venezuela after its leaders nationalized private companies, medical care and price and currency controls. Given all this evidence, why is it that so many people reject economic freedom and market systems in favor of greater government control?

Rubin is partly known for his work on the evolutionary biology of politics and he builds on those insights here. He begins by explaining that our brains evolved to solve problems our nomadic early human ancestors faced at a time of “little specialization and division of labor, little capital, low technological change, and little or no economic growth.” Hunter-gatherer societies engaged in exchange, however, and in their zero-sum world, wealth inequalities were likely due to shirking responsibility or refusing to share. Because human brains have evolved little in the last 10,000 years, modern humans retain an innate mental architecture focused on fairness that lacks modules for appreciating the social benefits of innovation, economic growth, investment and exchange.

He concludes that “economics is like reading: it can be learned, but it must be taught.” And economists, he says, are going about teaching it all wrong. We speak of capitalism in terms of competition, when instead we should be emphasizing its role in cooperation.

Competition Implies Winners and Losers

The word “competition” conjures a sports metaphor with winners and losers, where one can gain only at the expense of another. That may be true in a zero-sum environment, but voluntary market transactions have positive-sum outcomes in which both parties gain. While competition is important in markets, Rubin emphasizes that what people are competing for is the right to cooperate. Sellers compete with other sellers for the right to cooperate with buyers by producing something they value. Employers compete with each other for the right to cooperate with workers.

When economists emphasize “competitive markets,” they lose people who think in terms of zero-sum outcomes. The focus on competition evokes concerns about fairness and empathy for losers, rather than an appreciation that the cooperative outcomes these markets facilitate provide opportunities for improving everyone’s wellbeing.

Zero-Sum Fallacy

Erroneous zero-sum thinking is at the heart of the problem and it is nowhere more evident than in political dialogue. Most of the Democratic presidential candidates offer proposals to address income inequality and redistribute wealth. Implicitly, they assume that wealth is a fixed pie. However, by focusing on how the pie is divided, they miss the more important question of how their policies will affect the size of the pie. For example, higher taxes reduce incentives to work and minimum wage laws reduce job opportunities for entry-level and low-skilled workers.

Similarly, President Trump’s immigration and trade policies are based on flawed zero-sum thinking. Under the mistaken premise that all workers are competing for a fixed number of jobs, he concludes that keeping foreign workers out is good for Americans. He doesn’t see that voluntary transactions are positive sum and that immigrants increase the number of people available for Americans to cooperate with. For some jobs, foreign workers are better at cooperating with employers than American workers, and through that cooperation, the size of the pie grows. Similarly, by looking only at the competition imported Chinese goods pose for U.S. manufacturers, Trump ignores the fact that U.S. consumers benefit from being able to purchase those goods at lower prices than they could from U.S. firms. In Rubin’s framing, if foreign manufacturers are better at cooperating with U.S. consumers, that increases the size of the pie, and everyone benefits.

Cooperative Capitalism

Rubin shows that every market transaction involves cooperation among millions of individuals, directly and indirectly. Indeed, he argues that most economic relationships are cooperative rather than competitive. This “massive web of production and consumption” occurs impersonally but cooperatively, without any conscious coordination. Regulatory policies that interrupt that cooperation—restrictions on contracts employers and workers can negotiate or on the types of products people can sell—reduce the size of the pie and end up harming the very workers and consumers they purport to protect. These government actions, by definition, force people into involuntary transactions or prevent them from entering into voluntary transactions.

By reframing market processes as “free cooperative markets,” he argues economists could better communicate the benefits of capitalism, and perhaps avoid some of the negative-sum policies that appeal to our untrained evolutionary minds. Instead of seeing a successful firm as one that harmed a competitor, we would recognize that it was better at cooperating with consumers. Then, we might be more skeptical of arguments from unsuccessful firms for government actions that hinder competition and penalize successful competitors, and of restrictions that constrain voluntary exchange.

Rubin’s persuasive new book shows that political thinking was important for our ancestors’ survival, but the economic thinking necessary for modern times must be learned. To overcome our innate biases, we must recognize that the world is not zero-sum, and that cooperation is a win-win situation. Then we might appreciate that the free capitalist economy is the most successful cooperative system the world has ever seen.

I am the director of the George Washington University Regulatory Studies Center and distinguished professor of practice in the Trachtenberg School of Public Policy and

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I am the director of the George Washington University Regulatory Studies Center and distinguished professor of practice in the Trachtenberg School of Public Policy and Public Administration. From 2007 to 2009, I oversaw federal government regulations as Administrator of the Office of Information and Regulatory Affairs (aka the Regulatory Czar) in the White House Office of Management and Budget. I have studied regulations and their effects for more than three decades, from perspectives in government, both as a career civil servant and a political appointee, in academia, non-profit organizations, and consulting. I am a former president of the Society for Benefit Cost Analysis, a senior fellow of the Administrative Conference of the United States, a National Academy of Public Administration fellow, on the boards of the National Federation of Independent Businesses Legal Center and Economists Incorporated, and on the executive committee of the Federalist Society Administrative Law Group.